RAMALLAH, West Bank (REUTERS)–With Palestinian leader Yasser Arafat freed from a month-long Israeli army siege, the two sides Friday faced new pressure from world leaders to try to end the conflict.

In Washington, Secretary of State Colin Powell said preparations were underway for a Middle East peace conference this summer, but no venue or precise date had yet been set.

Arafat spent Thursday reveling in the adulation of Palestinian crowds following the end of Israel’s one-month siege of his headquarters in the West Bank city of Ramallah.

In an interview with Reuters, Arafat took a diplomatic tack, saying he still saw Israeli Prime Minister Ariel Sharon as a partner for peace despite the destruction wrought on Palestinian areas by the Israeli military offensive.

“He is the person who has been elected by the Israelis and we are dealing with him . . . because our partner is the Israeli people,” Arafat said.

Those words contrasted with his angry denunciation earlier in the day of the Israeli government as “Nazis, terrorists and racists.”

In Washington, President Bush put an optimistic spin on the crisis that has torn the region since the collapse of peace talks and outbreak of a Palestinian uprising against Israeli occupation 19 months ago.

Bush, whose government is Israel’s strongest ally, told a news conference after meeting European Union leaders that he believed progress was being made toward ending the violence and re-starting talks on a Palestinian state.

He spoke about a U.S.-European vision of a Palestinian state living side by side in security with Israel.

But wagging his finger at both Sharon and Arafat, he cautioned, “A Palestinian state must be achieved by negotiating an end to occupation, but such a state cannot be based on a foundation of terror or corruption.”

Powell mentioned preparations for a summer conference on the Middle East after meeting U.N. Secretary-General Kofi Annan, Russian Foreign Minister Igor Ivanov and two European Union leaders–the so-called “quartet” set up to coordinate the international effort to find peace.

“This is a time for prompt action to take advantage of this new window of opportunity that has been presented to us, and we intend to do just that,” Powell said.

On the ground, more immediate issues still occupied the different sides, among them the Israeli siege of the Church of the Nativity in Bethlehem, continued action by Israeli forces in the West Bank and Gaza and Israeli fears Palestinian militants could strike civilian targets at any time.

In Bethlehem, the church siege entered its second month with Israeli troops shooting dead one man they said was a militant and wounding two others who ventured into a courtyard.

Palestinian gunmen wanted by Israel ducked into the church, revered by Christians as the site of Jesus’ birth, April 2 to escape soldiers who had moved into Bethlehem.

Inside are dozens of civilians, clergymen and Palestinian security men whom Israel describes as hostages and Palestinians say are there voluntarily.

Bethlehem mayor Hanna Nasser said Palestinians had proposed the wanted militants be handed to Palestinian custody in Jericho under the supervision of U.S. and British monitors.

A similar deal over six wanted men accused of assassinating an Israeli cabinet minister last year secured the lifting of the siege of Arafat’s headquarters this week.

Palestinians and their Arab allies were enraged over the collapse of a U.N. investigation into what they claim was a massacre by Israeli troops in the Jenin refugee camp in the West Bank last month.

U.N. Secretary-General Kofi Annan disbanded the team after Israeli opposition. Arab nations pushed the United Nations to strongly criticize Israel for blocking the mission.

Israel said the terms of the investigation were stacked against it. Israel denies all allegations of massacres at Jenin and says deaths there were the result of heavy fighting as it rooted out a terrorist network.

International officials and human-rights groups say they have found no evidence to back charges of massacres but suspect Israeli troops of committing lesser crimes at Jenin.

Human Rights Watch said in a report Friday it had identified 52 Palestinians killed during eight days of fierce house-to-house fighting at the camp, of whom 22 were civilians.